Chapter 8
STRATEGIC
MANAGEMENT
© Prentice Hall, 2002

8-1
Learning Objectives
You should learn to:
– Explain the importance of strategic management
– Describe the steps in the stra...
Learning Objectives (cont.)
You should learn to:
– Describe the five competitive forces
– Identify the various competitive...
The Importance Of Strategic Management
What Is Strategic Management?
– A set of managerial decisions and actions that
dete...
The Strategic Management Process

© Prentice Hall, 2002

8-5
The Strategic Management Process
1. Identifying the Organization’s Current Mission,
Objectives, and Strategies
– mission -...
Components of a Mission Statement

© Prentice Hall, 2002

8-7
The Strategic Management Process (cont.)
2. Analyzing the Environment
– successful strategies are aligned with the
environ...
The Strategic Management Process (cont.)
4. Analyzing the Organization’s Resources and
Capabilities
– examine the inside o...
The Strategic Management Process (cont.)
5. Identifying Strengths and Weaknesses
– strengths - activities the organization...
Identifying the Organization’s Opportunities

Organization’s
Organization’s
Resources/Abilities Opportunities

© Prentice ...
The Strategic Management Process (cont.)
6. Formulating Strategies
– require strategies at the corporate, business, and
fu...
Levels of Organizational Strategy

© Prentice Hall, 2002

8-13
Types Of Organizational Strategies
Corporate-Level Strategy
– determines
• what businesses a company should be in or wants...
Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
– Grand Strategy - Growth
• seeks to increase ...
Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
– Grand Strategy - Growth (cont.)
• related di...
Types Of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
– Grand Strategy - Growth (cont.)
• retrenchme...
Critical
Weaknesses

Firm Status

Valuable
Strengths

SWOT Analysis And Grand Strategies
Corporate
Growth
Strategies

Corp...
Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
– Corporate Portfolio Analysis - used when cor...
The BCG Matrix
Market Share
Low

High

High

Stars

Question
Marks

Cash
Cows

Dogs

Low

Anticipated
Growth
Rate

© Prent...
Types of Organizational Strategies (cont.)
Corporate-Level Strategy (cont.)
– BCG matrix (cont.)
• strategic implications ...
Types Of Organizational Strategies (cont.)
Business-Level Strategy
– determines how an organization should compete in each...
Types Of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
– Competitive Strategies
• Michael Porter - ind...
Types Of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
– Competitive Strategies (cont.)
• Porter’s com...
Forces In The Industry Analysis
New
Entrants
Bargaining
Power or
Suppliers

Threat of
New Entrants

Industry
Competitors

...
Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
– Competitive strategies (cont.)
• Porter’s thr...
Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
– Competitive strategies (cont.)
• Porter’s thr...
Types of Organizational Strategies (cont.)
Business-Level Strategy (cont.)
– Competitive strategies (cont.)
• Porter’s thr...
Requirements for Successfully Pursuing Porter’s Competitive Strategies

© Prentice Hall, 2002

8-29
Types Of Organizational Strategies (cont.)
Functional-Level Strategy (cont.)
– used to support the business-level strategy...
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  1. 1. Chapter 8 STRATEGIC MANAGEMENT © Prentice Hall, 2002 8-1
  2. 2. Learning Objectives You should learn to: – Explain the importance of strategic management – Describe the steps in the strategic management process – Explain SWOT analysis – Differentiate corporate-, business-, and functional-level strategies – Explain what competitive advantage is and why it’s important to organizations © Prentice Hall, 2002 8-2
  3. 3. Learning Objectives (cont.) You should learn to: – Describe the five competitive forces – Identify the various competitive strategies © Prentice Hall, 2002 8-3
  4. 4. The Importance Of Strategic Management What Is Strategic Management? – A set of managerial decisions and actions that determines the long-run performance of an organization Purposes of Strategic Management – involved in many decisions that managers make – companies with formal strategic management systems have higher financial returns than companies with no such system – important in profit and not-for-profit organizations © Prentice Hall, 2002 8-4
  5. 5. The Strategic Management Process © Prentice Hall, 2002 8-5
  6. 6. The Strategic Management Process 1. Identifying the Organization’s Current Mission, Objectives, and Strategies – mission - statement of the purpose of an organization • important in profit and not-for-profit organizations • important to identify the goals currently in place and the strategies currently being pursued © Prentice Hall, 2002 8-6
  7. 7. Components of a Mission Statement © Prentice Hall, 2002 8-7
  8. 8. The Strategic Management Process (cont.) 2. Analyzing the Environment – successful strategies are aligned with the environment – examine both the specific and general environments to determine what trends and changes are occurring 3. Identifying Opportunities and Threats – opportunities - positive trends in the external environmental – threats - negative trends in the external environment © Prentice Hall, 2002 8-8
  9. 9. The Strategic Management Process (cont.) 4. Analyzing the Organization’s Resources and Capabilities – examine the inside of the organization – available resources and capabilities always constrain the organization in some way – core competence - a unique and exceptional capability or resource • the organization’s major value-creating, competitive weapon © Prentice Hall, 2002 8-9
  10. 10. The Strategic Management Process (cont.) 5. Identifying Strengths and Weaknesses – strengths - activities the organization does well or any unique resource – weaknesses - activities the organization does not do well or resources it needs but does not possess – organization’s culture has its strengths and weaknesses • strong culture - new employees easily identify the organization’s core competencies – may serve as a barrier to accepting change • influence managers’ preferences for certain strategies – SWOT analysis - analysis of the organization’s strengths, weaknesses, opportunities, and threats © Prentice Hall, 2002 8-10
  11. 11. Identifying the Organization’s Opportunities Organization’s Organization’s Resources/Abilities Opportunities © Prentice Hall, 2002 Opportunities in the Environment 8-11
  12. 12. The Strategic Management Process (cont.) 6. Formulating Strategies – require strategies at the corporate, business, and functional levels of the organization – strategy formulation follows the decision-making process 7. Implementing Strategies – a strategy is only as good as its implementation 8. Evaluating Results – control process to determine the effectiveness of a strategy © Prentice Hall, 2002 8-12
  13. 13. Levels of Organizational Strategy © Prentice Hall, 2002 8-13
  14. 14. Types Of Organizational Strategies Corporate-Level Strategy – determines • what businesses a company should be in or wants to be in • the direction that the organization is going • the role that each business unit will play – Grand Strategy - Stability • no significant change is proposed • organization’s performance is satisfactory • environment appears to be stable and unchanging • few organizations today pursue this strategy © Prentice Hall, 2002 8-14
  15. 15. Types Of Organizational Strategies (cont.) Corporate-Level Strategy (cont.) – Grand Strategy - Growth • seeks to increase the level of the organization’s operations • concentration - growth through direct expansion of organization’s own business operations • vertical integration – backward - become your own supplier – forward - become your own distributor • horizontal integration - grow by combining with other organizations in the same industry – needs approval by U.S. Federal Trade Commission © Prentice Hall, 2002 8-15
  16. 16. Types Of Organizational Strategies (cont.) Corporate-Level Strategy (cont.) – Grand Strategy - Growth (cont.) • related diversification - grow by merging with or acquiring firms in different, but related, industries – “strategic fit” • unrelated diversification - grow by merging with or acquiring firms in different and unrelated industries © Prentice Hall, 2002 8-16
  17. 17. Types Of Organizational Strategies (cont.) Corporate-Level Strategy (cont.) – Grand Strategy - Growth (cont.) • retrenchment - designed to address organizational weaknesses that are leading to performance declines – intended to: » stabilize operations » revitalize organizational resources and capabilities » prepare to compete once again © Prentice Hall, 2002 8-17
  18. 18. Critical Weaknesses Firm Status Valuable Strengths SWOT Analysis And Grand Strategies Corporate Growth Strategies Corporate Stability Strategies Corporate Stability Strategies Corporate Retrenchment Strategies Abundant Environmental Opportunities © Prentice Hall, 2002 Environmental Status Critical Environmental Threats 8-18
  19. 19. Types of Organizational Strategies (cont.) Corporate-Level Strategy (cont.) – Corporate Portfolio Analysis - used when corporate strategy involves a number of business • Boston Consulting Group (BCG) matrix - provides a framework for understanding diverse businesses – helps managers establish priorities for making resource allocation decisions – businesses classified in terms of » market share » anticipated market growth © Prentice Hall, 2002 8-19
  20. 20. The BCG Matrix Market Share Low High High Stars Question Marks Cash Cows Dogs Low Anticipated Growth Rate © Prentice Hall, 2002 8-20
  21. 21. Types of Organizational Strategies (cont.) Corporate-Level Strategy (cont.) – BCG matrix (cont.) • strategic implications of the matrix – cash cows - “milk” » use cash to invest in stars and question marks – stars - require heavy investment » eventually will become cash cows – question marks - two strategies » invest to transform them into stars » divest – dogs - sold off or liquidated © Prentice Hall, 2002 8-21
  22. 22. Types Of Organizational Strategies (cont.) Business-Level Strategy – determines how an organization should compete in each of its businesses – strategic business units - independent businesses that formulate their own strategies – Role of Competitive Advantage • competitive advantage - sets an organization apart by providing a distinct edge – comes from the organization’s core competencies – not every organization can transform core competencies into a competitive advantage – once created, must be able to sustain it © Prentice Hall, 2002 8-22
  23. 23. Types Of Organizational Strategies (cont.) Business-Level Strategy (cont.) – Competitive Strategies • Michael Porter - industry analysis based on five competitive forces – Threat of new entrants - affected by barriers to entry – Threat of substitutes - affected by buyer loyalty and switching costs – Bargaining power of buyers - affected by number of customers, availability of substitute products © Prentice Hall, 2002 8-23
  24. 24. Types Of Organizational Strategies (cont.) Business-Level Strategy (cont.) – Competitive Strategies (cont.) • Porter’s competitive forces analysis (cont.) – Bargaining power of suppliers - affected by degree of supplier concentration – Existing rivalry - affected by industry growth rate, demand for firm’s product or service, and product differences © Prentice Hall, 2002 8-24
  25. 25. Forces In The Industry Analysis New Entrants Bargaining Power or Suppliers Threat of New Entrants Industry Competitors Suppliers Current Rivalry Threat of Substitutes © Prentice Hall, 2002 Buyers Bargaining Power or Buyers Substitutes 8-25
  26. 26. Types of Organizational Strategies (cont.) Business-Level Strategy (cont.) – Competitive strategies (cont.) • Porter’s three generic strategies – cost leadership - goal is to become the lowest-cost producer in the industry » tries to identify efficiencies in all operations » overhead kept to a minimum » product or service must be perceived to be of comparable quality to that offered by competitors © Prentice Hall, 2002 8-26
  27. 27. Types of Organizational Strategies (cont.) Business-Level Strategy (cont.) – Competitive strategies (cont.) • Porter’s three generic strategies (cont.) – differentiation - offer unique products that are widely valued by customers » sets the firm apart from competitors » differentiation based on quality, service, product design, brand image » customers must be willing to pay a price premium that exceeds the cost of differentiation © Prentice Hall, 2002 8-27
  28. 28. Types of Organizational Strategies (cont.) Business-Level Strategy (cont.) – Competitive strategies (cont.) • Porter’s three generic strategies (cont.) – focus - aims at a cost advantage or differentiation advantage in a narrow segment » no attempt to serve the broad market » feasibility of strategy depends on the size of the segment and the ability of the firm to support the cost of focusing © Prentice Hall, 2002 8-28
  29. 29. Requirements for Successfully Pursuing Porter’s Competitive Strategies © Prentice Hall, 2002 8-29
  30. 30. Types Of Organizational Strategies (cont.) Functional-Level Strategy (cont.) – used to support the business-level strategy – creates an appropriate supporting role for each functional area of the organization • e.g., manufacturing, marketing, human resources © Prentice Hall, 2002 8-30

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